The Appraisal Institute recently participated on a conference call with staff of key federal agencies – including the Federal Deposit Insurance Corporation, Federal Housing Finance Agency and Consumer Financial Protection Bureau – to discuss rules resulting from the Dodd-Frank Act that address:
- When interior inspection appraisals are required in “higher-cost” (i.e., subprime) mortgages;
- When second appraisals are required for properties sold within 180 days;
- Minimum operating and state registration requirements for AMCs and reporting obligations to the National Registry maintained by the Appraisal Subcommittee; and
- Development of quality control standards for automated valuation models (AVMs).
The Appraisal Institute emphasized that interior inspection appraisals are the “gold standard” within the industry. The Dodd-Frank Act provision sought to quell use of drive-by and desktop appraisals in higher risk mortgages. It also sought additional collateral risk assessment to combat property flipping. The Appraisal Institute strongly supports these provisions.
Regarding AMC registration and reporting requirements, the Appraisal Institute provided perspectives gleaned from the 29 state laws that have been enacted requiring registration of AMCs, and emphasized that the federal requirements should mirror those already enacted. The proposed rules also should attempt to rectify the definition of an AMC versus an “appraisal firm,” and lender obligations for agents regarding payment of fees. Other issues that should be addressed or clarified in the rules are whether commercial AMCs will be required to register with any National Registry (not authorized in Dodd-Frank), and disclosure requirements for AMC owners and operators.
The Appraisal Institute expressed support for provisions found in the Interagency Appraisal and Evaluation Guidelines as a starting point for the development of quality control standards for AVMs, which emphasize that users of AVMs have an obligation to understand the their inner-workings and to validate the results. The Appraisal Institute suggested that the agencies turn to common quality control standards established by the International Standards Organization (ISO) 9001 for additional input.
The Appraisal Institute is preparing a comment letter to the agencies outlining these, and related issues, that were not discussed during the meeting. Dodd-Frank mandates that these rules be finalized by January 2013.
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